Branch offices
Branch offices are an extension of a parent company, but are not a separate legal entity. The branch office carries out business operations on behalf of the parent company, but is controlled by the parent company.
Pros:
Maintained control
- Since a branch office is not a separate legal entity, the parent company still possesses full control over the branch office.
Simplified processes
- Since the branch office is not a separate legal entity, it does not need to carry out legal processes separately, such as filing tax returns. The financial activities are usually consolidated under its parent company’s records.
Market expansion
- Setting up a branch office allows you to expand your business into new markets and regions without having to go through the process of incorporating you company from scratch again.
Cons:
Limited control
- A branch office has limited flexibility compared to subsidiary companies, since it is not a separate entity. All of its activities and decision-making are still controlled by the parent company.
Liability risks
- The parent company is fully responsible for the debts and liabilities of its subsidiary branch. Any risks faced by the subsidiary branch would be transferred directly to its parent company as well.
Representative offices (RO)
A Representative office (RO) is a business structure that allows foreign companies to establish their presence without having to set up a branch or subsidiary. It is a temporary setup that foreign companies can establish in Singapore to explore the market. It is often used as a “first step” before properly deciding to expand further into Singapore’s market. However, it is not a separate legal entity and cannot engage in any revenue-generating activities.
Pros:
Market exploration
- Setting up an RO is a suitable option if you want to explore the Singapore market, without having to make a large commitment. It helps you test the water and familiarise yourself with the local market before choosing to establish your business here.
No tax obligations
- Since a representative office cannot earn any income or revenue, it does not need to pay taxes on profit. It is thus a tax-efficient option for testing the market.
Cons:
Limited activities
- ROs cannot conduct business operations like signing contracts and making sales. It is limited to non-commercial activities like market research.
Short nature
- ROs are meant for temporary purposes and thus have a lifespan of up to 3 years only. Afterwards, its parent company would have to make the decision of whether to transform it into a more permanent structure like a subsidiary or branch office.